More and more companies are offering employer student loan repayment programs to help employees pay off their student loans. This benefit gives employers leverage to attract and retain talented workers, and it helps new hires build their careers while paying off student debt.
But there’s one drawback to employer-sponsored student loan benefits: Under tax laws, employer student loan repayment is usually taxable. (Although borrowers received a tax break in 2020 due to the coronavirus pandemic.)
That said, paying taxes on this benefit doesn’t mean it’s not valuable. For more on the benefits and tax consequences of an employer paying your student loans, let’s look at the following subjects:
- Job-sponsored student loan payments: how they work
- Tax consequences of an employer paying your student loans
- Making sure you benefit from student loan repayment
- Next steps to consider
In 2019, 8% of companies offered employer student loan repayment assistance, twice as many as the year prior, according to a survey by the Society for Human Resource Management. Companies that offer this benefit generally allocate a certain amount of money from their budgets for employees with student loans.
Here are some examples of high-profile companies that offer student loan repayment benefits:
- Fidelity Investments offers a $2,000 reimbursement package distributed over five years to employees who pass the six-month mark at the firm. Employees can receive up to $10,000 per borrower toward student loan repayments.
- Education technology company Chegg disburses up to $5,000 a year to entry-level and manager-level employees in the U.S. for student loan repayment, while more senior employees can receive up to $3,000 annually. As a separate benefit, employees can receive up to $1,000 per year in cash for debt repayment.
- PricewaterhouseCoopers’ student loan pay-down plan gives employees the chance to receive $1,200 a year toward student loan debt, up to $10,000. The company says the benefit helps shave up to three years off student loan repayment.
- Global asset management company Natixis offers workers $1,000 immediately to use toward student loan debt, along with $83.33 per month paid directly to the student loan servicer. The benefit maxes out at $10,000 over a 10-year period, as long as the individual is still an employee during the duration.
- Aetna offers student loan repayment assistance to employees with eligible loans that meet company guidelines. It will start providing a $2,000 annual match for employee student loan payments, maxing out the benefit at $10,000. To be eligible, employees must work at least 20 hours per week.
Head to this guide for more companies that offer an employer student loan repayment program.
Ordinarily, any student loan repayment assistance you receive from your employer is taxable.
There was an exception for 2020 which allowed borrowers to deduct up to $5,250 from any employer-paid student loan assistance as part of pandemic relief.
But while repayment assistance might come with taxes, you can still get a tax break on any tuition reimbursement you receive. If your employer helps you pay for classes, you can claim a tax deduction for up to $5,250 annually.
Don’t let tax fears discourage you from participating in an employer-backed student loan assistance program. If you’re concerned that you’ll end up paying more in taxes to the IRS compared with what you’d likely save in student loan payments each month, consider the following five facts:
1. Tax rates and potential savings depend on your finances
2. Some programs are already tax-free
3. Refinancing can sometimes save you even more
4. Research potential employers’ student loan repayment policies is key
5. Your retirement should also be a factor
Minimizing the tax hit will depend on several factors, like the interest rate and terms of your student loans, your salary and the structure of your employer’s student loan assistance program. Crunch some numbers to see if you’ll come out ahead of the tax liabilities by receiving student loan benefits from your employer.
Some public sector student loan repayment programs are tax-exempt, including the National Health Service Corps Loan Repayment Program, the Public Service Loan Forgiveness program and other similar loan repayment or forgiveness programs.
If you choose a position in a qualifying program or field that already offers loan repayment or forgiveness, you don’t have to factor employer contributions into your decision-making when accepting a position. With the money you’re saving on loan repayment, you may be able to direct more funds into your retirement savings account.
Student loan refinancing can potentially provide borrowers with a lower interest rate, better repayment terms and higher quality service. Combine it with repayment assistance from your employer, and you could come out on top financially.
Just remember, once you refinance federal loans, you permanently lose access to federal aid programs, such as income-driven repayment plans and Public Service Loan Forgiveness.
When considering potential employers, recent grads are increasingly looking for loan repayment assistance as a benefit. A Student Loan Hero survey found that nearly 39% of students said it was a very important or extremely important benefit. Future employers who reimburse student loans may be ahead of the curve on the tax-savings front.
There’s a less-obvious benefit of working with an employer who will contribute to your student loans: The faster you pay off your student loans, the sooner you can really tackle your retirement contributions.
Some companies will also help you build your 401(k) while you pay off student loans. Instead of requiring that you contribute to your retirement account, these companies will provide a matching 401(k) contribution based on your student loan payments (and this match isn’t taxable). Head to this guide for more details on this unique benefit.
For now, prioritize your student loan payments and weigh the pros and cons between the benefits you’re likely to receive against the taxes you’ll need to pay. Although you don’t have to worry about any tax consequences of your employer paying your student loan in 2020 due to the CARES Act, this benefit could become taxable again when this legislation expires.
A student loan repayment assistance program can help you get a leg up on your finances while also advancing your career. Use Student Loan Hero’s resources to search for additional student loan repayment assistance programs in your state.
Rebecca Safier and Alli Romano contributed to this report.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.89% – 6.66%1||Undergrad & Graduate|
|1.89% – 5.90%2||Undergrad & Graduate|
|2.25% – 6.09%3||Undergrad & Graduate|
|1.99% – 5.34%4||Undergrad & Graduate|
|1.97% – 8.54%5||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of October 1, 2020.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of December 1, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of October 26, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 10/26/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 11/13/2020 student loan refinancing rates range from 1.97% to 8.54% Variable APR with AutoPay and 2.95% to 8.77% Fixed APR with AutoPay.